A mortgage is a loan that the borrower uses to purchase or maintain or other form of real estate and projects and agrees to pay back over time, typically in a series of regular payments. The property serves as collateral to secure the loan. A mortgage payment is typically made up of four components: principal, interest, taxes and insurance. The principal portion is the amount that pays down your outstanding loan amount. Interest is the cost of borrowing money. ... Mortgage insurance protects your lender in case you fail to repay your mortgage.
Would-be borrowers begin the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan, which might include bank and investment statements, recent tax returns, and proof of current employment. The lender will generally run a credit check, as well. If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. Project owners can apply for a mortgage after they have chosen a property to buy or while they are still shopping for one, a process known as pre-approval. Being pre-approved for a mortgage can give buyers an edge in a tight market. Once a borrower and Lender have agreed on the terms of their deal, they or their representatives will meet at what's called a closing. The borrower will transfer ownership of the property and project to the Lender and receive the agreed-upon sum of money.
Mortgages come in a variety of forms. The most common types are 30-year and 15-year fixed-rate mortgages. Some mortgages can have terms as short as five years, while others can run 40 years or longer. Stretching payments over more years reduces the monthly payment but increases the total amount of interest that the borrower will pay over the life of the loan.
We deal only with a fixed-rate mortgage, the interest rate stays the same for the entire term of the loan, as do the borrower's monthly payments toward the mortgage. A fixed-rate mortgage is also called a “traditional" mortgage.
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